Soon after the report dropped, DraftKings sent Legal Sports Report the following statement via counsel David Boies:
“We are not aware of what Vantiv may or may not have told other industry participants about its plans. However, to be clear, first, Vantiv has not told DraftKings that it plans to cease fulfilling its contractual obligations as of “Feb 29, 2016” (or any other date). Second, Vantiv is under court order to continue to fulfill its contractual obligation to DraftKings.”
DraftKings’ statement was first reported by ESPN’s Darren Rovell.
FanDuel released a statement on Monday:
There are media reports that Vantiv will stop processing payments on our site. While we cannot comment on Vantiv’s decision, we want our users to be aware that there are many other payment processors available, as well as PayPal, and this decision will not impact their ability to play on FanDuel, withdraw funds or have any other impact on the user experience.
A later Boston Globe report spoke with an attorney for Vantiv, who confirmed the letter was sent.
What we know so far about Vantiv
The New York Times said Vantiv would “suspend all processing for payment transactions” starting Feb. 29. More from the report:
“As you are aware, an increasing number of state attorneys general have determined that daily fantasy sports (‘D.F.S.’) constitute illegal gambling,” Jonathan Ellman of Vantiv.com wrote in a letter obtained by The New York Times. “Although in recent weeks D.F.S. operators have raised numerous arguments to the contrary, to date those arguments have been unsuccessful and/or rejected.”
FanDuel and DraftKings are undoubtedly looking for another company to process credit card payments. Short of a replacement, that would leave PayPal as the only remaining option for users. Suffice it to say, the loss of Vantiv, without another company stepping in, would be immediately crippling to the business of the DFS sites.
It appears from the New York Times and a later Boston Globe report applies to all companies that Vantiv serves in the daily fantasy sports space.
“I think we want to make real sure as an industry that the alternatives identified for all DFS providers remain transparent, and that the integrity of the industry remains intact despite today’s apparent setback,” iGaming lawyer Jeff Ifrah told Legal Sports Report after the news broke.
The balance sheet of negative opinions on the legality of DFS is likely what has made Vantiv skittish regarding the industry. So far, AGs in seven states have come to the conclusion that DFS is gambling or otherwise illegal under state law.
The latest came today, when Mississippi’s AG offered an opinion to that effect. The number of such opinions has more than doubled just in the past few weeks.
About payment processing and DFS
DFS sites like DraftKings and FanDuel generally do not handle player banking functions (deposits and withdrawals) internally.
Instead, much of that work is in the hands of payment processors and payment gateways that serve as a critical financial intermediary between players and DFS sites. Without access to these processors and gateways, DFS sites would be effectively unable to operate.
The Unlawful Internet Gambling Enforcement Act is a law dealing specifically with payment processing of illegal gambling. It contains a carveout for fantasy sports, as long as “all winning outcomes reflect the relative knowledge and skill of the participants,” among other provisions.
The rule of construction in the UIGEA states: “No provision of this subchapter shall be construed as altering, limiting, or extending any Federal or State law or Tribal-State compact prohibiting, permitting, or regulating gambling within the United States.”
The bottom line: the UIGEA does not apply if a fantasy sports operator is running afoul of state law. Obviously the idea that DFS is legal in every state in which sites operate is an idea that has increasingly come under fire.
The risks the processors are willing to take with respect to DFS is clearly less than that of the operators:
- They generally have a larger business beyond DFS that they must prioritize over DFS.
- They are generally required to be licensed and are overseen by governments in most, if not all, states due to their role as financial institutions or “money transmitters.” That gives them additional exposure to state and federal law enforcement.
For those reasons, and a host of others, payment processors and gateways are incentivized to act far more cautiously on average than a typical DFS operator.
Vantiv and the New York AG vs. DFS
The first evidence payment processors were becoming worried about the DFS industry came in the wake of the New York attorney general’s cease-and-desist notice in November. Vantiv told DraftKings and FanDuel to exit New York after that.
DraftKings, however, actually sued Vantiv to force it to keep processing payments in New York and won (story here). As such, Vantiv has continued to process payments, even as AG opinions piled up. Vantiv has also asked a New York court whether it should be compelled to do business with DraftKings.